- Exploring the critical components of National Economic Transformation Plan 2024-29 and the challenges ahead
The government of Pakistan has formally launched the National Economic Transformation Plan 2024-29 titled ‘Uraan Pakistan’ on the last day of the year 2024 with the promise to revive the country’s economy. The five-year plan aims to address key economic challenges through a targeted framework called the ‘Five Es’ – Exports, E-Pakistan, Equity and Empowerment, Environment (Food & Water Security) and Energy & Infrastructure.
In this article, some background and insights into present state of affairs in some of the areas which the government aims to address through 5-year plan are discussed. The success of the plan lies in the fact whether the government is able to diffuse the political tensions at home and ward off any impending external threats from neighbors during first half of 2025. If there has to be a ‘Charter of Economy’, it should be in the following areas:
Human capital crisis
The World Bank Report on Pakistan’s Deep Human Capital crisis released in May 2023 unsurprisingly, highlights grim state of human capital of Pakistan. Pakistan’s ’s Human Capital Index (HCI) is 4.1 lowest in South Asia (SA average 4.8) and comparable Sub-Saharan Africa of 4. HCI is comparable to Sub Saharan countries rather than South Asia. However, complete apathy and neglect of leadership to these vital sectors is not pointed out explicitly. HCI of 0.41 means that a baby born in Pakistan today will only be 41% as productive as they could be if they enjoyed complete education and full health. The country’s HCI is lower than the South Asian average of 0.48 where Bangladesh’s 0.46 and Nepal’s 0.49.
As per the country director of World Bank for Pakistan “With over 20 million school-age children out of school, high levels of child malnutrition, and low empowerment of women, Pakistan’s human capital challenges are among the most serious in the world — it is a human capital crisis that is profound, silent and with far reaching negative effects on the potential of the country and its people”.
The Human Capital Review shows that Pakistan can realise substantial economic growth by bringing its population growth rate under control, investing significantly more in the supply and quality of health and education, and bringing women to the labor force. Strong human capital is essential for sustainable economic growth, to prepare the workforce for the more highly skilled jobs of the future, and to compete effectively in the global economy.
Equity and empowerment
In May 2023, Pakistan’s consumer price index (CPI) inflation hit an all-time high of 38 per cent due to mismanagement of the exchange rate and higher global food and fuel prices. When inflation numbers run high, it can cause big problems for the economy, not just because people and businesses have to pay more for everyday items, but because it can turn into a vicious cycle. Workers find that with higher prices, their salaries do not suffice so they demand higher wages, which businesses pay for by raising their prices, which then further strains paychecks.
To counter that, the State Bank of Pakistan (SBP) stepped in and raised interest rates to an all-time high of 22% in June 2023. Hiking interest rates make borrowing more expensive and restrain spending and, eventually, inflation since hiking interest rates seemingly curbs demand. In 2024, however, the SBP finally started fixing the interest rate. In June 2024, the SBP finally cut the interest rate by 150 basis points (bps) to 20.5% — its first rate cut in four years — citing that data showed inflation slowed to a 30-month low of 11.8% in May 2024. This essentially started SBP’s trajectory to ease interest rates based on its inflation outlook — having it currently reduced to 13% in December 2024.
For a developing country such as Pakistan, other statistics are far more sobering. According to the World Bank, the current poverty rate in the country stands at 40.5% with an additional 2.6 million Pakistanis falling below the poverty line. In the World Economic Forum’s gender report, the country ranked 142 out of 146 countries — ahead of just Iran, Algeria, Chad and Afghanistan. That is not all, the country has to endure multipronged challenges of climate change, gender and poverty — all inextricably linked with one another. So if inflation is really coming down, why the decreasing inflation numbers fail to provide a sigh of relief to the masses?
The simple answer is that Pakistan is not experiencing deflation (opposite of inflation when general price levels fall), instead the current scenario could best be explained in terms of ‘disinflation’ – a term that is used to show a drop in just the rate of inflation. It simply means that the inflation rate going down does not necessarily mean the price levels have gone down. Although Pakistan has failed to carry out any reforms, the faster-than-expected decline in the inflation rate could be attributed towards a higher base of 2023, a tight monetary stance of the SBP, and falling global oil prices.
The downward trend of inflation is likely to continue in 2025 however, in the absence of an export-oriented growth strategy, any growth achieved through import-oriented consumption will lead to higher inflation due to the depreciation of the rupee. It is important to note this decline in inflation means that prices are still increasing but at a rate slower than last year. People are still suffering higher prices low-income trap. The government now needs to work to improve economic activity and create livelihoods and income opportunities for people. This is the only way forward for improving the purchasing power of people who have been crushed by skyrocketing prices in the last four to five years.
Digital Pakistan
In the wake of internet disruptions throughout 2024, Pakistani startups witnessed another lacklustre year as equity funding plunged further to just $22.5 million in disclosed value, down substantially from $75.8 million in 2023, while the number of deals came in at 15. These readings are the worst since at least 2018 when the ecosystem was quite nascent with hardly any of the current venture funds even launched. Things could possibly have been worse, with Q1 just recording one deal and Q2 two. During the year, at least three startups raised debt, with Abhi getting a $15 million credit line and Neem another $4 million. On the other hand, Shark Tank Pakistan also brought in a fresh funding avenue to local businesses through an entirely different format and saw some massive announcements.
Sector-wise, e-commerce led in volumes with five deals worth a disclosed $8.5 million, substantially down from last year. Meanwhile fintech came on top value-wise at $10.5 million across four rounds. Transport & logistics, once a heavyweight, did not see any activity whatsoever. Finally, we saw some signs of M&A, notably Turkiye’s Papara buying Sadapay at a reported price range of $30-50 million. It may still be a long while before we see any healthy pathway towards exits.